How responsible investing could create a better world

When Sir David Attenborough returned to our screens last year with A Life on Our Planet – his witness statement to the world – he stressed the way we collectively invest our pensions is “jeopardising the future that we are saving for”.

2020 was one of the warmest years on record, and his words only strengthen the view that money needs to both earn a return and be a force for good. The investment industry is listening, and progress is gradually being made. Companies are also starting to wake up to the idea that they may have a better chance of long-term success and profitability if they adopt sustainable business practices.

Responsible investing isn’t just about the environment, of course. The COVID-19 crisis has turned our attention towards corporate behaviours – both good and bad – and helped illustrate why successful businesses are often those that care about their people, their supply chains and their community. 

A re-examination of our relationship with the planet and society is a reason why more of us are allocating our savings to sustainable investments and choosing funds that look at ESG (environmental, social and governance) factors in their investment processes. A recent survey by The Investment Association found 38% of total UK assets integrate ESG into the investment process, up from 26% in 2019*.

Whether ESG funds will outperform over the next 10 or 20 years is hotly debated. Nevertheless, several studies show that companies with good ESG management tend to be more profitable over the long-term. They are also better prepared for sudden crises than companies that do not follow a sustainable governance approach.

Of course, many people will be just as interested in the non-financial benefits that responsible investing can deliver. Research from Nordea shows that our savings can have 27 times more impact on our personal carbon footprint when invested sustainably than other reduction activities like flying less, eating less red meat and shortening our showers. 

What is ESG?

ESG refers to Environmental, Social, and Governance factors. This is a term used synonymously with Responsible Investing and relates to the additional factors that are assessed and analysed alongside traditional company analysis before making investment decisions. 

Responsible investing in practice

The Principles for Responsible Investment (PRI) is a global leader in promoting standards of responsible investment, supported by the United Nations. The group encourages asset owners and managers to use responsible investment to better manage risks and seek opportunities, in the pursuit of long-term value in sustainable markets.

As a topic, responsible investing is very varied and constantly evolving but is the means that fund managers can assess a company’s attitude to different factors, and whether they will be positioned to perform financially in future. As examples, when deciding whether to buy, hold or sell an asset our fund managers will consider: 

• if the company is positioning itself to address the issues of climate change, waste management and energy efficiency. 

• Is the company addressing any issues in its supply chain, treating its workforce fairly and considering the views of the community it impacts?

• Is the business paying excessive levels of executive pay, does it report transparently, and does it listen to a wide variety of views ahead of making important decisions?

The factors relevant to each business will vary according to the asset type and geographical location of the fund manager. For instance:

• climate change is a huge factor for the energy industry 

• cyber security for the payments industry

• labour rights and supply chain management for the fashion industry

Investors increasingly seek information about sustainability and responsible investing, with growing awareness of the broader long-term aspects of successful and effective investing.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

To receive a complimentary guide covering wealth management, retirement planning or Inheritance Tax planning, contact Zack Raven at McMillan Wealth Consultants Ltd, on 07581 348894 or email zack.raven@sjpp.co.uk.

McMillan Wealth Consultants Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the Group’s wealth management products and services, more details of which are set out on the Group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

* Investment Management in the UK 2019–2020, The Investment Association

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